Monthly Archives: Aug 2010

We recently debated how thenatureof global service delivery is going to change in this climate of leveling prices, increasing buyer expectations and post-recession lethargy. This is clearly a pivotal time for the industry.

We decided to get a flavor from India, where their BPO providers are eagerly ramping up for taking on new business, and asked our friends based in the beautiful university city of Pune, ValueNotes, to share some insights with us. One of their lead analysts, Reetika Joshi, who can boast the Accenture prize for best student on her Marketing Management Masters course at Aston University (UK), has shared her insights with us. Not sure what that prize actually was, so let's hear her views on the Indian BPO provider dynamics instead:

The hunters and the hunted: Indian BPOs readying for a rebound

As the world recovers from recession, the major Indian BPO providers eagerly await a return to the BPO boom, which has paused in the past 18 months as companies have sought to cope with riding out the tough-times.

As HfS Research recently revealed with a new study of enterprise BPO demand, many enterprises are seriously looking at outsourcing to solve many of their performance issues, however, it’s clear many are taking their time before jumping into large contracts. In fact, we’re actually seeing more piecemeal engagements from companies making more tentative moves into BPO. While the bounce-back has hardly been resurgent, BPO is clearly firmly on the corporate agenda and many of the leading Indian service providers are expanding staff, acquiring competitors, and making new marketing plans to widen market share and penetrate new sectors, such as the mid-market.

In a bid to sound a bit clever, my good friend Philip Peters over at Zagada (which does some excellent analytics on the global sourcing space), pulled some data to discover that at least 110,000 home-based call center jobs have been created in the US in the last three years by companies such as Alpine Access, Working Solutions,LiveOps, Arise NA and [email protected] Now that's more onshore jobs than the entire size of Cognizant's global workforce!

Now while it's clear that homeshoring is not primed to replace offshore work anytime soon, it clearly is a viable option for front-line customer-facing services at competitive prices. The removal of the bricks and mortar, telecom costs and use of Cloud-based applications to record/monitor calls is enabling the homeworking environment on a serious scale. Other areas, such as medical coding, already rely heavily on homeshoring staff to work on administrative tasks with contextual needs.

Running a business myself, which is entirely "in the Cloud" with folks working largely from their homes, you do start to wonder how quickly the homeshoring model with proliferate, especially with the amount of workers available to switch on their PCs from their houses and start work. This is one dynamic emerging from the Recession that you can see gaining traction, as more and more people opt to work remotely (or have little choice but to). Procurement/sourcing, accounting, medical writing, financial research... the number of possibilities for using homeshoring as adjunct delivery options in other BPO areas is clearly apparent.

We've seen a significant shift in in the competitive landscape for BPO providers in the last two years - some of the leading Indian service providers have taken advantage of the Recession to steal a march on several of their incumbent competitors, pushing their own tenacious brand of offshore service delivery. The change has been dramatic, with some of the traditional providers of recent years being knocked off their perch. When HfS produces its new competitive landscape later this year, this market shift away from some of the "traditional" BPO engagements and momentum towards new approaches for pricing, engagement scope and IT-synergy will be apparent.

One of those providers which has evolved significantly into a major BPO provider, in its own right, is Tata Consultancy Services (TCS). Like a couple of the other major Indian IT services providers, TCS has quietly, but aggressively, developed a global operation of scale at a rapid clip, with its 2008 acquisition of Citigroup's banking captive adding significant offshore BPO scale and financial services competency to its $1.2 billion mammoth multi-tower IT-BPO-KPO engagement with Nielsen in 2007. Quite simply, it's eye-opening how quickly the likes of Infosys, TCS and Wipro have muscled in on the business process game, as they branch out from their massive IT services businesses.

To discuss this dynamic at length, we managed to grab some time with TCS's head BPO honcho, Abid Ali Neemuchwala - (more simply known in the business as "Abid") to talk about TCS's development, and his views for the future nature and development of global BPO service delivery.

Abid has developed a 17 year tenure with TCS where he expanded the firm's operations in Mumbai, Pune and Gujarat (in India), the Midwest of the US and Japan, before moving his family over to sunny Dallas to lead the firm's global BPO surge. Abid kindly relented from one of his evening city strolls to spend some time with us...

Phil Fersht: Good morning Abid. Let’s start with where TCS is today, how things have changed in the last six months, where you see the majority of demand coming from and how the business is shaping up.

I received a ton of email andblog comments this week from various people airing their views on Senator Schumer's visa-fee hike. They tended to be in the form of one of the following:

"Right on - this guy is all about protectionism and has little idea how to create jobs"

"The policy is so toothless, it's barely worth talking about"

"It's only targeting firms who excessively use H1B staff, so what's wrong with that?"

"We have to protect American jobs"

"I never knew you were a Republican"

All fair comments - except the last one. Firstly, my politics have always been left-of-center - I am merely a global realist and believe in intelligent, informed debate on these tough issues. Secondly, it never ceases to amaze me how polarized people in the US are when it comes to politics. You're either Democrat or Republican - there's now common ground on anything. And thirdly, I'm not American anyway, so it's a moot point.

The other major point that needs to be made, is that this policy does nothing to create American jobs - it's merely political grandstanding from the protectionist lobby. As we pointed out, the visa-hike will only encourage further offshoring, and the inflated fee is not enough to have any meaningful impact on altering current dynamics. Moreover, it's pretty hard to couch these political actions as anything but protecti0nist politics when the Senator in the driving seat brands one of the leading Indian IT services firms a "chop shop" (detracted, or whatever - he said it).

What options, then, could the US government consider, if it wants to "stop" Indian IT services firms bringing temporary IT staff over to the US, and create an environment for fostering onshore technology employment and innovation?

1) Give Indian services firms tax-incentives that would sufficiently motivate them to hire and train US IT employees. Many of these firms provide a great training ground for new IT talent - now let's ensure they are motivated to train and develop talent in the US and not just offshore staff. Many leading Indian firms have proved extremely good at training, developing and motivating young IT talent, so why not get us a piece of the action?

2) Give US enterprises tax-incentives for creating new onshore IT jobs. This won't be any harder to administer that call center tariff etc.

3) Establish an oversight committee that will devise an immigration strategy to encourage top talent into the country and ensure it stays here. Ensure immigration policies are focused on developing the talent pool in the country and not open to abuse;

4) Establish more dynamic partnerships between academic institutions and businesses. We don't see enough involvement from the academic sectors in the global sourcing industry today - a few firms, such as Systems In Motion, are pushing the agenda, but these firms need a lot more investment to get anything like the scale and execution capability to be effective in the global market place.

We live in global economy and we need to focus on being competitive for a larger piece of the pie, not trying to protect limply the dwindling one we have left. The Chinese economy is the new powerhouse - we need to ensure we have the innovators, thinkers and operators to compete effectively. Countries with developing talent, such as India, can help us be competitive, as long as we create smart entrepreneurial environments to work with them.

Chuck (center) and his selfless buddies strategizing how to stimulate the US economy

Senator Charles E. Schumer, not content with ludicrous attempts totax the US consumerfor taking an offshore call, has continued his personal tirade against the use of offshore services, by pushing through legislation to add a further $2,000 tax for an H-1B visa application, and $2,250 more for an L-1 visa application. This CIO Magazine article by journalist Stephanie Overby does an excellent job discussing the situation.

You have to wonder about the motives of a US senator, who describes Infosys as a "chop shop" and pushes through legislation that is deigned to antagonize service providers, as opposed to what he should be doing: helping to make US service providers become more competitive, and US IT / BPO workers more attractive to be hired than those offshore.

In terms of creating more US IT jobs, this is a further backward step in trying to re-energize the US IT industry for the following reasons:

1) Indian IT services providers will attempt to conduct more IT work offshore / outside of the US, whereas in the past they would have conducted the work locally with either a US employee, or an Indian visa holder in the US. Impact: more work moves offshore as opposed to onshore work being created

2) Indian IT service providers have been investing heavily in hiring onshore staff, and have been creating local employment. However, the new visa taxes will only help to accelerate the movement of more complex IT work offshore. The Indian providers have a proven successful strategy of taking on complex IT projects and “learning on the job” with their offshore personnel. This new fee will only encourage them to take bolder steps to take more work offshore. Impact: more work moves offshore as opposed to onshore work being created

3) When Obama was elected and voiced potential moves to slowdown offshoring, several Indian IT providers made investments in locations such as Canada (especially Ontatio) and Latin America. They will now look to leverage these investments more aggressively. This is great news for the developing nearshore IT services markets. Impact: more work moves offshore and nearshore, as opposed to onshore work being created

4) With the global IT services industry poised for consolidation, this may encourage several of the leading Indian IT giants to acquire onshore US firms, now they have more financial incentive to do so – which would likely have further negative ramifications for the US IT job market. When Indian firms acquire US IT services firms, they will seek to rationalize the existing onshore staff to support their offshore operations, while keeping salary costs at a minimum. Impact: more work moves offshore as opposed to onshore work being created

5) The US IT and hi-tech industries grew up on bringing talent into the country that added new skills and ability – and was often more affordable. By further discouraging bring the talent to the states, Schumer and co are driving the next wave of IT development out of the country. Impact: innovation moves offshore, and more vacant office-lots in Silicon Valley.

President Obama has set out to be a transformative president, who can elevate US competitiveness in a global economy and create jobs by intelligent fiscal stimulus. He needs to drive policies that will stimulate employment, and stimulate innovation. The economic wonder that became America, was centered on an immigrant society, and attracting talent to these shores. My fear is that policies like Schumer's are moving the US further away from the very principals with made its economy what it once was. The imperative word here is "was"...

Today's outsourcing industry is balanced on a knife-edge as costs continue to level-out across service providers for operational work. Business leaders are demanding more innovation and productivity from their outsourcing endeavors, but their delivery teams tend to be more concerned with the work culture of their provider.

So how can leading service providers deliver all the goodies CFOs and CIOs want, in addition to being really flexible and easy to work with? Quite an ask, but those who can deliver both will win out. So how did we arrive at this impasse?

During the early years of this Millennium, the onslaught of the Indian-headquartered outsourcing providers was centered on low-cost service provision, and a willingness to do whatever clients wanted to win the business. This strategy has proved especially effective for the less-complex IT application development and maintenance work, and several operational business processes, such as invoice or claims processing.

In today's market, the Western providers have been forced to bring their costs in line to be competitive for the "lower-end" work, by expanding and optimizing their offshore/nearshore operations. Once their prices are within 10-15% of the offshore-centric providers, the provider selection decision veers away from price, and towards one of with whom do we actually want to work?

Two different services cultures have defined today's outsourcing business

We’ve witnessed an incredible dichotomy of styles in the outsourcing business over the last decade - one of top-down dictation from our traditional incumbents, in stark contract to the bottom-up tenacity from our growth machines from the sub-continent. To put it quite simply, the Western incumbent providers show up at the CIO’s or CFO’s office and tell her/him how they can change their world to do things their way, while the Indian-headquartered providers have typically operated a rung or two down, offering to do whatever their clients need to get the job done – and make them look good in the process.

One set of providers has grown considerably over the recession years, and continues to outperform the industry, while the other is maintaining a status quo, with far more modest growth. And, as we've mentioned, it’s not all about price anymore – several hundred thousand Indian and Philippines citizens are proudly showing up to work in an Accenture, Capgemini , Deloitte or IBM polo-shirt. Both the traditional providers and the newer Indian breed can offer low-cost services to take on new business. So if it’s not really about cost anymore, and the Indian-headquartered providers continue to gain marketshare in this environment… the secret sauce must really be about work culture. Let's examine further...

I got a few of emails today from people who claim you can't only blame Hurd for HP's current malaise, moreover it's the whole HP leadership that should be held accountable.

I say it's all about the leader and the team he or she molds that drives the vision and instills passion down through their organization.

Today's winning services firms are being shaped by their leaders:

Accenture's Bill has charisma, is pragmatic, and has had the guts to bring in new blood and thinking to constantly break new ground; Cognizant's Frank's incredible energy, youthful thinking and intellect defines his firm; Genpact's Pramod relentlessly drives his firm on with a consistent vision; Infosys' Kris has a determination to shape the industry; while Wipro's Suresh has stuck to his guns to deliver his own brand of global sourcing to clients. These are just some examples of today's services leaders who define agendas for their firms and are prepared to adapt to change. And one other thing - if a large deal was on the line, they would be personally involved.

Several other providers have forgotten their personalities, are lumbering along trying to meet certain metrics, but seem to be following trends, as opposed to leading and defining them.

Now, none of these providers are perfect - they all have their warts (hell, we all have warts), but what they do have are leaders with a vision and an understanding of how to position their firms in unique times like these, where there is no "set" way of doing things. Today, there is no rule book. Instead there is passion and energy, creativity and innovation. Moreover, services companies need to forge an identity to survive.

Hurd's challenge was that HP was too big and too focused on hardware. He needed 5% annual growth, which was about $6-7B a year. He would much rather sell a hardware device to a business or a retailer with a service contract attached, than sell a more strategic and "sticky" business process contract.

HP doesn't have time to make a poor, or even an average, decision. The firm needs a vision, it needs to detail specifically how it intends to service its customers, and how it intends to help them find new thresholds of performance. It needs a leader who can step in to re-energize the firm, set out its agenda, nurture the cash-cows, while investing in the growth opportunities. The industry is watching which direction HP takes - and this one's crucial.

When Mark Hurdtook up the reins as HP's boss back in 2005, the company badly needed him to stabilize the business, drive up the stock price, while instilling discipline and cost-control into many of its global operations.

Whatever the reason for his demise (and quite frankly, he's not Tiger Woods, so who cares?), he's done what HP needed him to do - and this is a good time to put someone else at the helm who can start closing the gap with IBM and others. In fact, he should have gone sooner, because there's a lot of ground to be made up right across the board.

One of those is a flagging BPO business that had outperformed anyone's expectations before the EDS merger threw it into a confused shambles. The addition of EDS should have been the cherry on the icing-on-the-cake to drive the emergence of a major BPO powerhouse to challenge the likes of Accenture and IBM.

In pre-EDS days, HP was giving everyone a run for their money winning several mega F&A engagements, such as Nestle, P&G, Clorox and Molson-Coors, and were doing a great job bundling IT and ERP-enablement services around their BPO. The firm was also discretely picking off payroll-centric HRO engagements and building an impressive competency for running multi-country SAP-based payroll services. HP also boasts one of the world's largest supply chains it could have leveraged to drive its source-to-pay offerings.

But Hurd rarely mentioned BPO in his speeches or strategy discussions - the business relied firmly on the determined leadership of some great individuals (you know who you are) who drove that business in spite of lacking much senior leadership support. Consequently, since the EDS merger, more of the BPO leadership exited the business, the ExcellerateHRO business was sold to rivals Xerox(ACS) and the firm is rarely seen in major pursuits. Instead, most of its BPO focus is polarized on the healthcare sector, which is smart, but not when the rest of the BPO areas are neglected.

Bottom-line, Hurd is one of those IT operations guys who didn't quite understand the value and stickiness BPO engagements can bring to a IT-BPO services provider - he's a dollar- and-cents guy, not a business transformation one. Accenture and IBM have multi-billion dollar BPO businesses. Infosys, TCS and Wipro are tenaciously growing BPO business that are threatening to surpass HP's. Capgemini has also moved in front of HP in the pecking order in most deal pursuits - particularly in Europe. And even in the verticals, such as healthcare, up-and-comers like Cognizant are edging in front.

HP is a great company and has a solid base of BPO from which to build. But it's "lost years" in BPO need addressing quickly by whomever next takes the hot-seat. And this time, there isn't much time, in a polarizing industry with twice as many competitors. An acquisition or two will likely be needed to turnaround its stuggling BPO service lines... and we'll be hinting on where this should come from very soon.

The Windy City will be injected with some additional hot air on 28th September for the ultimate finance and accounting shoot-em-up.

Yes, HfS has teamed with its networking partner, SSON, to present a superior discussion across the 'hood of F&A and sourcing, with Northern Trust's Jay Desai, one of the buy-side's most respected voices on sourcing governance, Capgemini's own sourcing sheriff David Poole, the pontiff of procurement Jason Busch... and bossed by HfS. We'll be debating the burning topics in finance technology, shared services and outsourcing, waste management, and presenting some new research findings from our recent F&A studies.

DuringPart I, we talked about social media and marketing, a little bit about outsourcing, and touched upon the late-night cannoli scene in Baltimore.

Rebels without much pause...

In Part III, we will discuss the merits of ricotta versus custard cream filling, but for now, let's dive into where the outsourcing business is heading...

Phil Fersht: I’ve observed, at several recent forums, that most software folks still don’t really understand the services market. They seem to think services people do the grunt work and it’s still all about the app. Do you agree that software people still don’t have their head around ITO, BPO and how it all fits together?

Ray Wang: I think software people see that the value-add in the solution is what customers are looking for. And that last mile, which is still in services, is even harder to deliver as customers’ requirements continue get tougher. Flipping that around, do you think the service providers see that their solutions are increasingly differentiated by software or their own IP?

Phil Fersht: Let’s look at a growting BPO area like F&A (finance and accounting), where clients want service providers to handle their AP, procure to pay, payroll and other related processes. The providers can partner with a company like NetSuite or Workday and deliver to their clients the hosted application and the processing around it. But if you have 10 service providers offering NetSuite F&A, what’s differentiating them? Their ability to process invoices? No. For the service providers to gain competitive advantage, they need to develop their own IP and their own applications to add value for their clients. And when we’re talking about the coming together of SaaS/Cloud and BPO, it really becomes more of a business transformation issue than a technology transformation one.

There is only one Ray Wang. Thank the Lord, because if there were two, the Twitter servers would likely fall-over and the industry wouldn't need anymore analysts.

In all seriousness, Ray Wang is a true dynamo in the technology and social media world, having made his name as a superior analyst at Forrester Research, with spells at PeopleSoft, Oracle and E&Y, before co-founding research-based advisory firm Altimeter Group. He also has an industry-standard blog "A Software Insider's Point of View".

I only ever seem to meet Ray at the oddest times of the day - most recently he took me on a midnight guided tour of his University town, Baltimore (Ray went to Johns Hopkins), and we also staged a late-night pool tournament at a vineyard somewhere in Georgia. Anyhow, while I was sinking the winning black, we threatened to share some views together on the industry, and thought we'd air some recent discussions we had about the world of social media and the convergence of software delivery and outsourcing... here's Part I:

Phil Fersht: Ray - you’ve been pretty immersed in the world of social media for quite a while now. As it seems to be having a major impact on the potential customer experience, how do you think enterprises and service providers need to approach embracing social media and tools and technologies?

Ray Wang: Companies need to quickly start embracing social tools, because their customers are increasingly using them. But some organizations don’t even realize their customers have moved. For example, we met with a client about a month ago that had just discovered it could shift 20 percent of its marketing budget online and reach 40 percent of its audience. So the one thing we’ve really been focusing on is customer insights. Who is your customer? Where are your customers going? Facebook? Twitter? Where are your competitors going? To do this, companies need to start with the analytics and the insights, build a social media case and then work their way from there.

I also think there is a significant component when you think about BPO for the cloud. The reality is, we’re actually moving very quickly back to the old service bureau models from 1960. If you think about what you need to do on social media analytics, what you can do to tie social back to contact centers – all of this is going to come back to having efficient services and operations that are better connected to how people are using those services. So when people argue that social is just a channel, I would counter that social is a different manner of how people are going to be working. And that’s going to have an affect on all service providers.